Sinopec, the oil sands and justice delayed

Workers on Canadian Natural Resources Ltd.'s (CNQ-T30.900.110.36%) large Horizon project in Alberta's oil sands knew something was wrong with the way a crew of Chinese workers flown in by a unit of China's state-owned oil giant Sinopec was building a massive storage tank on the site back in 2007.

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Gil McGowan, head of the Alberta Federation of Labour, said a union official with a crew of Canadian ironworkers working nearby on a different contract told him the tank worksite looked unlike any other he had seen. In the oil sands, clusters of giant vats known as tank farms have been a fixture of the industrial landscape for decades.

"I remember him saying, 'Gil, I'm looking at the work that's going on at the tank farm and I honestly don't know what they're doing. I've never seen scaffolds erected like that, I've never seen tanks being built that way,'" Mr. McGowan recalled in an interview.

Later that day, the support structure holding up the metal tank's roof collapsed, killing two Chinese workers, injuring two others, and launching a tangled saga that would see an arm of Sinopec, formally known as China Petroleum and Chemical Corp. and one of the largest companies in the world, wage a legal battle to avoid facing health-and-safety charges in a Canadian court.

Next week, that issue goes before Alberta's Court of Appeal. A trial on the charges that came after the workers' deaths has now been delayed another year, until the fall of 2012.

The case has raised concerns from labour leaders such as Mr. McGowan about the attitude of Chinese state-owned enterprises – which are pouring billions into the oil sands and other natural resource projects in Canada – toward local rules. Labour unions also point to the case as evidence that more safeguards are needed to deal with the explosion in the use of temporary foreign workers in the oil sands, where the feverish pace of activity has created a labour shortage.

Sinopec Shanghai Engineering Co. Ltd., using a skeletal Canadian subsidiary set up for the deal, had contracted with Canadian Natural Resources to build storage tanks on the Horizon site north of Fort McMurray and one of the largest projects in the oil sands. Union officials say about 150 Chinese workers were flown in for the project under Canada's temporary foreign worker program.

After the tank's collapse, the workers were sent home and Alberta health and safety officials launched an investigation. Two years later, they laid an unprecedented 53 charges for failing to ensure worker health and safety against three companies: Canadian Natural Resources; Sinopec's Canadian subsidiary, SSEC Canada Ltd.; and Sinopec Shanghai Engineering Co. Ltd. Convictions could mean a maximum $500,000 fine on each charge.

A lawyer for Sinopec Shanghai declined to comment. A spokesman for Sinopec could not be reached. Lawyers for SSEC Canada and Canadian Natural Resources also declined to comment.

The trial on the safety charges was delayed repeatedly, with Sinopec Shanghai Engineering arguing that it has no presence in Canada and was not served properly with the charges. It argued that a summons for Sinopec Shanghai, given to the manager in charge of SSEC Canada, was invalid.

In a 2010 ruling, an Alberta provincial court judge agreed. But earlier this year, Mr. Justice Sterling Sanderman of the Alberta Court of Queen's Bench tossed that aside, saying Sinopec Shanghai was clearly aware of the charges against it, having sent a lawyer to court in late 2009.

Judge Sanderman said the lower-court ruling allowed a foreign company, which had arranged its affairs to avoid a presence in Canada, an unfair excuse to evade charges. Sinopec Shanghai will challenge this ruling before Alberta's Court of Appeal Oct. 6.

Lawrence Herman, a lawyer and international trade expert with Cassels Brock & Blackwell LLP in Toronto, said state agencies do not typically enjoy any concept of sovereign immunity when acting as commercial entities. Courts also tend to overlook problems when it comes to the complexities of serving a summons on a foreign entity, he added.

"The courts will try their very best to ensure that the defendant will be brought into court," Mr. Herman said, cautioning that he did not have first-hand knowledge of the issues in the case. "They don't like allowing putative defendants off the hook by virtue of technicalities."

The story has had several other twists. The Christian Labour Association of Canada alleged in a 2009 lawsuit that when the surviving Chinese workers on the site returned to China, they were given only a fraction of the wages the company pledged to pay them.

Union official Wayne Prins also travelled to China in an effort to hand over benefits payments and money raised by other workers on the site to the dead workers' widows. He later went back to China to persuade the workers to sign up for a lawsuit in Canada against Sinopec over lost wages, but says he was put under surveillance. That lawsuit was later withdrawn, when a Chinese worker who had initially given Mr. Prins the power of attorney to pursue the case in Alberta recanted. Sinopec argued that it had paid its workers properly.

With tens of thousands more temporary foreign workers and more investment from Chinese companies in the oil sands expected, Mr. Prins said governments need to do more to ensure workers are paid properly and have safe workplaces.

"Sinopec took a little bit of China to Canada with them," Mr. Prins said. "And that is just the way they have chosen to operate."

Editor's note: The maximum possible fine for companies facing charges under Alberta's Occupational Health and Safety Act is $500,000 for each charge, for a first offence. Incorrect information was published in an earlier version of this story. This version has been corrected.